September Historically Worst Month of Year

Investor’s first read – Daily edge before the open
DJIA: 18,400
S&P 500:2,170
Nasdaq Comp.: 5,213
Russell 2000: 1,239
Thursday, September 1, 2016 9:03 a.m.
In her address Friday to the Monetary Policy Symposium, Fed Chair Janet Yellen, said the case for a rate hike has strengthened in recent months. Going forward, she expects interest on excess reserves, forward guidance and asset purchases will be important tools in its toolkit.
Yellen noted the next hike would depend on subsequent economic data and would be gradual, not rapid-fire, as some fear.
Presently, the Street gives a September hike a modest probability (36%), leaning more toward December (59%).
The odds for an increase could improve tomorrow if the Employment Situation report comes in above 200,000.
Worth noting:
-Strength in the U.S. dollar will make it more difficult for multinationals to post good earnings over coming quarters potentially adversely impacting S&P 500 earnings, a basis for overall market valuation.
-September is historically the worst month of the year for stocks.
-The G20 Summit will take place on Sept. 4-5.
-The European Central Bank meets on Sept. 8 and the Bank of England on Sept. 15.
-OPEC meets on Sept. 26-28
Expect some buying in early trading. Institutions tend to do their heaviest buying in the first week of the month.
There is significant overhead supply that the market will encounter as it tries to move ahead. No room for a rally failure here in light of September’s reputation as the worst month of the year.
SUPPORT “today”: DJIA:18,343; S&P 500:2,153 ; Nasdaq Comp.:5,186
RESISTANCE “today”: DJIA:18,343; S&P 500:2,152; Nasdaq Comp.:5,186
The risk for over-reliance on Fed policy and low interest rates is that it forces investors to seek riskier and riskier stock and bond investments, which will ultimately result in a bubble burst.
We had bubble bursts in January 2000 with dot-coms, and again in 2008 with housing/derivatives. The next one could be the Fed bubble burst when investors get over extended in speculative issues only to find nothing the Fed can do, not even negative rates, can avert and soften the impact of an ugly recession.
Ms Yellen referred to the Fed’s toolkit in her Jackson Hole speech ( Interest on reserves, forward guidance and asset purchases), the implication being the Fed can use these to control future economic cycles. Lot’s of Luck, Ms Yellen.
That event can be months or a year out. Just be aware it can happen, because there will be little warning ahead of time. Prior to that, some nice money can be made, so long as investors watch their back.

On occasion, I technically analyze each of the 30 DJIA stocks for a reasonable risk, a more extreme risk, and an upside potential over the near-term. I add the results of each, then divide by the new DJIA “divisor” (0.14602) to get the DJIA for those levels. This gives me an internal check on the DJIA itself, especially if certain higher priced stocks are distorting the averages.
As of August 26, 2016, a reasonable risk is 17,650 a more extreme risk is 17,587 Near-term upside potential is 18,527.
This market has defied anything I have ever seen EXCEPT that is, near market tops.
News headlines of new all-time highs attracts interest especially from investors who have not participated in this bull market. Likewise, it is forcing investment professionals (brokers, money managers, hedge funds and newsletter writers) to become more fully invested.
It is characteristic of late bull market behavior to prompt talk of a “New Era.”
I have heard the New Era talk before. It comes on stream when the market hits new highs after a long bull run at a time just about everyone concludes the market simply has to go higher and they better jump on board.
I see fundamental and technical signs that warn of a top, but then I started seeing those three weeks ago. It is a matter of how high is high, and a momentum that is self fulfilling.
Bull markets can reach unthinkable extremes when investors stampede into stocks fearing being left behind.
Then too, fear of total ruin at bear market bottoms can trigger panicky selling as investors scramble to salvage what’s left of a portfolio after a 30% -45% plunge.
Major tops and bottoms are marked by extremes. Savvy investors know this. Even so, it is a challenge for any human to resist the urge to chase running stock prices at unreasonable heights, or get chased out after a harrowing plunge in stock prices.
(So far this is not holding up)
The market is tracking a pattern for presidential election years where an administration is in its second term.* The news is bad.
Historically, these markets have declined in Jan./Feb., rallied in March then topped out in early April, plunged in May with brief rallies in June and August and a plunge into October prior to the election.
 STATUS OF MARKET: Neutral – but very, very vulnerable. Expect volatility
 OPPORTUNITY: RISK: Risk high, Profit taking justified.
 CASH RESERVE: 45%. Consider 75% now if tolerance for risk is low.
 KEY FACTORS: Outlook for Q3, and 2016 earnings questionable with strong U.S. dollar.
Note: Source of weekly economic calendar and good recap of indicators:
* (Excellent pre-market read)
George Brooks
Investor’s first read
A Game-On Analysis, LLC publication
Investor’s first read, is a Game-On Analysis, LLC publication for which George Brooks is sole owner, manager and writer. Neither Game-On Analysis, LLC, nor George Brooks is registered as an investment advisor. Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. References to specific securities should not be construed as particularized or as investment advice as recommendations that you or any investors purchase or sell these securities on their own account. Readers are expected to assume full responsibility for conducting their own research pursuant to investment in keeping with their tolerance for risk.

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